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Growth prospects for private railway passenger operators in Central and Eastern Europe

With a new approach to operating a railway passenger business, focusing on constantly improving customer experience and increasing customer satisfaction, private undertaking companies in Central and Eastern Europe are growing and expanding their activities within their home countries or beyond national borders.

leo_expressLeo Express started operations on the Czech railway market in December 2012. Currently, the company operates 16 daily connections with 5 Stadler FLIRT trains on the Prague – Ostrava and Prague – Staré Město routes. “We intend to share a more creative light into the railway sector, repositioning the business model and showing how a railway operator can raise profits and bring better services to the market” states Leos Novotny, Chairman of the Board of Leo Express. Compared to a typical CEE state railway operator, Leo Express has 50% lower operational costs. “We have 30% market share, we have transported one million passengers and have grown from zero employees to 200”, declares Novotny.

According to company information, it is the first open access operator in Europe to be EBITDA positive within first 12 months of operations. Leo Express intends to replicate the business model in the countries of CEE and has already extended into Slovakia and Poland.

Competition is fierce on the Czech railway passenger transport market and all three players count on low price tactics to win customers and some of them make profits, especially on Prague – Ostrava. RegioJet, the first Czech private railway operator, an affiliated company of Student Agency, has already filed a complaint to the Office for the Protection of Competition against alleged anticompetitive predatory pricing of CD (České dráhy).[i] Leo Express has not entered other routes as a consequence of the state incumbent lowering prices below their actual costs.

regio_jetRegioJet saw its profits decreasing in 2012. The company registered a turnover of CZK 300 mil, down from CZK 318 mil in 2011; loses on Prague – Ostrava line reached CZK 80 mil.[ii]  Last year the company was awarded the pilot project tender for subsidised fast trains on Ostrava/Omoluc railway line, in Northern Moravia, for 15 years from December 2014. Arriva Trains was the second bidder, but it was eliminated by the Transport Ministry due to missing paperwork confirming competence of its senior managers in railways. Between September and December 2013, Arriva Trains, as part of a pilot project, operated an unsubsidised passenger service Praha Masarykovo – Kralupy nad Vltavou route (26 km).

The newest entrant on the market is National Express CZ, a branch of National Express Group PLC. After winning two rail contracts to provide services to the Nord Rhine Westphalia regional government in Germany, the company is also seeking opportunities on the Czech railway market. “We have also pre qualified for the Berlin Ringbahn contract, due to be bid later this year and are looking at other suitable contracts in Germany, as well as in the neighbouring Czech Republic. We are currently working on 18 opportunities with annual revenue of £1 billion” informs the company in its 2013 annual report.

According to the Czech Information Agency for the Environment database, in 2012 railway passenger transport performance increased by approximately 550 million p-km (8.2%); the railways carried by approximately 5 mil. passengers more than in the previous year. This is the highest year-over-year increase in railway passenger transport performance since 1990.

Another market that registered positive figures is Slovakia, with a 6.5% increase in railway passenger transport performance, between 2010 and 2012. In this market, RegioJet managed to capture a 3% market share[iii] and posted a EUR 6.7 mil turnover in 2012. The company has transported more than 1.5 million passengers on the regional railway line Bratislava – Dunajská Streda – Komárno route (100km) since launching operations in March 2012. The Slovak infrastructure manager, ZSR, informed that RegioJet intends to also operate on route Čadca – Košice route.

Starting operations on the Polish market has proved to be more difficult for Leo Express, the company is still waiting for the approval of UTK (The Office of Rail Transportation). The operator plans to have 18 connections per day on Warsaw – Katowice and Warsaw – Krakow routes and additional 18 connections per day on Warsaw– Poznan – Wroclaw and Warsaw-Poznan-Szczecin routes.

arriva RPThe first private operator in Poland was Arriva RP (former  Arriva PCC; part of Arriva Group, belonging to DB), which began operating passenger rail services in 2007, in the Kujawsko Pomorskie region (north-west Poland), for 1.75m train km per annum around Bydgoszcz and Torun (what counts for 40% of the region’s passenger railway network).  When the network was re-tendered in 2010 with the concession period extended to 10 years the Arriva offer was PLN 17.99 per train km with 91.17% punctuality and the incumbent’s offer was PLN 35.48 with 90% performance guarantee. The Arriva winning bid also included replacing the second-hand trains with new ones (to provide a 100% modern low-floor fleet) and further customer service benefits.[iv] The contract for rail services covers about 100 railway stations and transport of over 2 million passengers a year.

Arriva also expressed interest in the Romanian market. In 2012, international press informed of Arriva’s potential takeover of 75% shares of Regiotrans, Romania’s largest railway private passenger operator. At the time, Regiotrans owners admitted having discussions with Arriva, but denied having closed any deal. Established in 2005, Regiotrans operates 100 rail routes and seeks to increase its activities. The company recorded a turnover of EUR 46.6 million in 2012, down by approximately 10% on 2011 figure.

On the private undertakings segment, Regiotrans is competing with Transferoviar Calatori and Interregional Calatori (former Regional). Transferoviar Calatori, part of Transferoviar Group had a boost in turnover from EUR 8.2 in 2011 m to EUR 12 m in 2012. All three companies aim to operate on commuter lines, which so far proved to be highly profitable. In terms of the rolling stock used, they use imported second hand DMU/EMUs, modernised by companies in their group. The public service obligation does not force them into providing new rolling stock.

In terms of railway passengers transported by railway, Romania registers a significant decrease by almost 14% between 2010 and 2012, from 5240 million p-km to 4518 million p-km.

Though the railway passenger markets in CEE still raise challenges in terms of their openness to competition, private railway investors continue to closely monitor them for business opportunities.

[i] OECD, Recent Developments in Rail Transportation Services 2013

[ii] Interview with Student Agency owner, December 2013, http://ekonomika.etrend.sk/

[iii] Annexes to the 2nd IRG-Rail Annual Market Monitoring Report, 27 February 2014

[iv] Liberalisation and competition in the European regional rail market. Arriva, June 2013

Photos* Leo Express, RegioJet, Arriva RP

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